Monday, March 16, 2009

It's all a Matter of Control

Free Market Meltdown? Economists Fret Over Return to Price Controls

We all remember how free markets are supposed to work right? With a few regulations geared towards preventing sellers from controlling the supply to an extreme degree, the market sets the price of goods and services based on the amount people are willing to pay to consume the supply of the item that is available for purchase.

The cost of an item can also be affected by outside forces, such as taxes or regulations placed on the manufacturers or suppliers of a product. As I've mentioned before, higher taxes on a corporation are, for the most part, not borne by that corporation. The corporation passes the added business costs on to the people buying their products.

One controversial solution being considered is a move back to price controls. The New York Legislature and the San Francisco City Council are considering expanding rent controls. Some politicians in Vermont are trying to limit the price of milk. And in Alaska, a bill to cap oil prices is pending in the state legislature.

Proponents say the government has an obligation to provide relief for consumers during these trying economic times. But many economists say controlling prices and rents has failed in the past, and it often has bad consequences.

"Economists widely agree that price controls often lead to shortages. There are many examples throughout history, and we have seen more recent demonstrations of this principle of economics in Venezuela and Zimbabwe," said Dr. N. Gregory Mankiw, a Harvard University economics professor and former chairman of the Council of Economic Advisers under President George W. Bush.

What do you do when you are making a widget, and someone strolls in and without even looking at your balance sheet tells you that you're charging too much for your widget and that you will have the price you can sell the widget for reduced and regulated by an authority? In a capitalist market, given adequate competition, the price is what it is for a very specific reason. That price is rarely capriciously high, for if it is too high, and everyone is playing fairly, it is inevitable that a competitor will slash their price, or a new player will enter the market with a lower price and steal customers away. So when someone tells you "your product is now worth this and that is what you will sell it for", you very often will just stop selling that product to the affected market. You may even leave the country you're operating in and, after firing all of your local workers, make and sell your product outside the country.

So what happens when you own a building and you get told that you must rent it for an unsustainable price? You certainly can't sell it - nobody in their right mind would buy a losing proposition. In defeat, you either let the bank have the worthless place, or you torch it for the insurance.

And what of those who were living in it? They're out on the street.

Rent control represents a collectivist fantasy. The People deserve your units at a price that is not sustainable in reality. If you don't let The People live there at the price we demand of you, we will put you in jail.

This is not what our ancestors came across oceans for. These kinds of controls are not good for America. This is just one more attempt by our "betters" to put us more under their control, impoverish us, and make us more reliant on their handouts.

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"I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it." – Thomas Jefferson